Business Policy and Strategic Management

Topic: Business Policy and Strategic Management

Introduction

Business policy as a field of study originated in 1911 when an integrated course in management was introduced at Harvard Business School as a part of curriculum. The course was designed with the main objective of improving general management competence. Following a number of expert studies on business education about fifty years later, the Business policy course was made compulsory for all Business Schools in USA. Since then, Business Policy was introduced as an integral course in the management degree/diploma programmes in many countries including India. However, there has been a shift in focus of the Business Policy course since the 1980s. The latest approach is focussed on Strategic Management.

This chapter is devoted to an exposition of the concept of business policy formulation by corporate management, followed by a discussion of the process of strategic planning and management in detail,

Nature of Business Policy

Business Policy, in a wider sense, refers to decisions about the future of an ongoing enterprise. These are decisions which only the top management of an enterprise can take having investigated market opportunity, appraised the distinctive competence and total resource of the company, and having combined the present and potential resources with the opportunities. These are vital, strategic decisions inasmuch as they determine the relationship between the enterprise and its environment, what it ought to be doing in the years to come, and how it should position itself to take advantage of the future market opportunities. Thus, business policy involves setting long-term objectives which will guide the destiny of the enterprise, its size and position in the product-market, as well as deciding on the resources of human abilities, capital plant and equipment, materials and energy which will be needed to achieve the objectives. In short, business policy consists of top management decisions relating to the future direction of business and the crucial problems that affect the success of the total enterprise.

The necessity of guiding the future direction of business arises at some stage in the case of every enterprise. So long as a firm is concerned with its survival, its main pre-occupation is with the existing problems of operational management and decisions are aimed at establishing a stable foothold in the market. Sooner or later, however, the management must pause and think over what business the company is in and what business it would like to be in whether it will continue to be active in the same line of business or combine new lines of activity with the existing business, enter new market segments, or seek to acquire a dominant position in the same market, and so on.

An ongoing enterprise having a satisfactory record and continuing to grow and prosper must also review and assess the evolving socio-political, economic and technological environments so as to modify its goals in accordance with the changing product-market situations. The dynamic nature of business environment, the present and potential opportunities and threats, the risks of undertaking new ventures, entering new markets, and such other aspects of business policy are of crucial importance in decision-making with long-term implications.

What specific products or services should be produced? Which products should receive the maximum emphasis? What ought to be the price-quality relationship of the product lines? What are the distinctive characteristics of the product as compared with those of similar competing products? At what point of time should the new products be launched?

What are the basic objects to be pursued? What is the rate of return on investment to be sought? What are the growth objectives to be pursued with respect to sales, and over what time period? What is the minimum return on investment to be achieved?

Strategic decisions are different from operating decisions which relate to day-to-day activities or current operations, e.g., resource allocation among functional areas and product lines, scheduling operations, monitoring performance and applying controls. The operating decisions are aimed at maximising profitability of current operations through pricing and marketing policies, production planning and scheduling, inventory management and control. Strategic decisions also differ from administrative decisions which are concerned with structuring the firm's resources so as to create a maximum performance potential. These are decisions concerned with establishing authority-responsibility relationships, work-flows, communication, distribution channels, location of facilities, as well as acquisition and development of resources, developing source of raw materials supply, personnel training and development, financing and acquisition of plant and equipment.

If the elements of strategic vision and corporate mission are combined in a single statement, it may be regarded as a future-oriented mission statement. The mission then helps to communicate both corporate vision and purpose. According to some writers, the distinction between strategic vision and corporate mission is relevant because the majority of corporate mission Statements, presumably in the United States, say more about ‘what our business is now’ than ‘what our business will be later’.

Can corporate mission statement be the starting point for developing the strategic vision? For one thing, the mission statement indicates what business the company is in, and that ought to be the basis of charting a strategic path for the future. Secondly, the product-market coverage of a company needs to be kept in view while communicating the strategic vision as a corporate commitment. A company producing video cassettes may be projected as being in entertainment business or information business, or both. Its strategic vision would naturally depend upon what is projected in the mission statement. The mission of Cadbury India is to attain leadership position in the confectionery market and achieve a strong national presence in the food drinks sector. This is clearly a direction-setting statement from which the strategic vision should emerge.

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